Despite claims of bad luck, two execs leave Harrah’s Rio casino

David Strow

Tuesday, July 10, 2001 | 10:54 a.m.

The Rio hotel-casino's top two executives abruptly departed Monday, four days after Harrah's Entertainment Inc. warned poor table game hold at its off-Strip property had once again hurt its profitability.

In a statement issued Monday afternoon, Harrah's said Jay Sevigny, Rio division president, and Cary Rehm, Rio general manager, had resigned. The only reason provided was that the two had left to pursue other opportunities, and company officials declined to elaborate.

"We appreciate the efforts of Jay Sevigny and Cary Rehm in guiding the Rio through turbulent times and wish them well in their new endeavors," said Harrah's President Gary Loveman in a statement.

Sevigny and Rehm could not be reached for comment.

With the resignations, the Rio will be immediately folded into Harrah's Western Division. The property was the only Harrah's-owned property in Nevada not part of that division. Harrah's also placed the Rio under the control of Tom Jenkin, general manager of Harrah's Las Vegas. Jenkin will keep his current position at Harrah's Las Vegas.

Though it wasn't mentioned in the official announcement, the Rio has proven a sore spot for Harrah's for more than a year. Last Thursday Harrah's announced it would once again miss earnings estimates for the quarter ended June 30, and said poor table game hold at the Rio was a big reason. The warning triggered a massive sell-off in Harrah's, and the company's stock lost nearly 20 percent of its value in a single day.

The off-Strip property, acquired by Harrah's in 1999, posted cash flow of just $29.2 million for all of 2000, compared to $97.9 million in 1999. The property had shown signs of life in the first quarter of 2001, posting cash flow of $22.7 million as table game hold firmed up. But the Rio returned to its old ways in the second quarter as table game hold once again plunged.

Harrah's officials sounded somewhat frustrated with the situation during a Friday conference call with investors.

"When one steps back and looks at the income statement at the Rio, you see a business that performs well ... but manages to win or lose a substantial amount of cash flow at the table games," Loveman said Friday. "We've been on the losing end of that for quite some time."

But the departure of Sevigny and Rehm had one gaming analyst musing whether bad luck is the only issue at the Rio.

"The management departures (at the Rio) are an interesting turn of events, because Harrah's management focused on the fact that the issues are luck-related, and that outside of luck, they were showing improved results," said Robin Farley of UBS Warburg.

Both Harrah's officials and gaming industry analysts are looking to Jenkin to turn the tide. In a statement, Western Division President Carlos Tolosa noted that Harrah's Las Vegas under Jenkin has boosted operating income by nearly 30 percent over the first six months of 2001.

"While we remain cautious in our outlook for the Rio, we are optimistic about these changes, as Mr. Jenkin has an impressive track record in managing Harrah's Las Vegas," said Bear Stearns gaming analyst Jason Ader in a research note issued today. Ader repeated his buy rating on Harrah's, saying the stock's decline had created "a good buying opportunity."